In the 2024 Autumn Budget, the UK government announced significant changes to Capital Gains Tax (CGT) rates, effective from 30 October 2024. To prevent individuals from exploiting the timing of these changes to secure lower tax rates, anti-forestalling measures have been introduced.
What are the changes to capital gains tax rates?
Effective from 30 October 2024, the main rates of CGT have increased:
• Basic rate taxpayers: from 10% to 18%
• Higher rate taxpayers: from 20% to 24%.
These changes apply to most assets, including shares, businesses, and property (excluding residential property, which already had rates of 18% and 24%).
Additionally, the rates for Business Asset Disposal Relief (BADR) and Investors’ Relief are set to increase:
• From 10% to 14% for disposals on or after 6 April 2025; and
• From 14% to 18% for disposals on or after 6 April 2026.
What are Anti-Forestalling measures?
Anti-forestalling measures are rules designed to prevent taxpayers from taking advantage of the timing of tax changes to pay lower rates.
Specifically, they address situations where individuals might:
• Enter into unconditional contracts to dispose of assets before the rate increase date but complete the transaction afterward;
• Make elections related to share reorganisations or exchanges to trigger gains at the old, lower rates.
Under these measures, such transactions may still be subject to the new, higher CGT rates unless certain conditions are met.
How might this affect you?
Example 1: Selling a Business
Suppose you agreed to sell your business on 25 October 2024, with the sale completing on 15 November 2024. Even though the contract was signed before the rate change, the anti-forestalling rules could apply, and you might be taxed at the new 24% rate instead of the previous 20%. To avoid this, you would need to demonstrate that the contract was not entered into with the purpose of securing the lower tax rate.
Example 2: Share Reorganisation
If you underwent a share reorganisation before 30 October 2024 and later elected to disapply rollover relief to claim BADR, the gain would be taxed at the rate in effect at the time of the election, not the reorganisation. So, if you make the election after 6 April 2025, the 14% rate would apply instead of the previous 10%.
What should you do?
• Review Transactions: If you’ve entered into a contract or a reorganisation around the rate change dates, assess whether the anti-forestalling rules apply.
• Provide Evidence: Be prepared to demonstrate that transactions were not undertaken to avoid higher tax rates.
• Consult a Tax Professional: Seek advice from a tax professional to navigate these complex rules and ensure compliance.
Understanding these anti-forestalling measures is crucial to ensure that you’re not unexpectedly subject to higher CGT rates. Proper planning and consultation can help you manage your tax liabilities effectively.
If you’re unsure whether an asset disposal transaction is affected by anti-forestalling and would like professional tax advice on capital gains, contact us via partners@rjp.co.uk.